IBM boosted its software portfolio for small and medium-size businesses with plans announced Friday to acquire “Net Integration Technologies,” a Toronto-based developer of Linux-based business server packages that compete head-to-head with Microsoft’s Small Business Server.

NIT’s small business server, called “Nitix,” includes Lotus Notes e-mail, file management, directory services, back up and recovery tools, office productivity software and other tools in a single bundle that runs on Linux. The Linux-based system is designed primarily for companies with little or no in-house IT support.

“The e-mail capabilities are based on the Lotus Domino server that Net Integration resells under an OEM license.”

The company sells primarily to auto dealerships, law offices, real estate agency branch offices, and other small business environments.

“Small businesses need superior collaboration technology as much as large companies do,” said Michael Rodin, GM for IBM's Lotus Notes unit, in a statement.

Net Integration Technologies, which offers business management tools, will be become part of IBM’s Lotus division when the deal closes, which is expected to occur this quarter.

“We plan to use the technology to go after Microsoft in the small business server market,” said Rhodin, during a conference call about the acquisition. IBM could use the technology to compete with Microsoft’s Windows Small Business Server, which provides collaboration, e-mail and communication tools.

Software is IBM’s most profitable business. Revenue at the unit, which trails only Microsoft Corp. in sales, grew 12 percent in the fourth quarter to $6.26 billion. The company has bought seven software companies in the past year.

Sales to small businesses are becoming increasingly important to IBM. SMB revenues, which accounted for about 19% of the company’s total sales, rose 11% in the fourth quarter to $5.4 billion, IBM said Thursday.

“Integration has built some incredible technology that we really think is going to help us move into the small and medium-size business market,” Rhodin said in a conference call.

Small businesses were traditionally a big part of Lotus’ target customers, Rhodin said. IBM acquired Lotus in 1995 for more than $3.5 billion and the company focused on selling Lotus products to large customers. “Somewhere along the line we lost touch with our roots,” the general manager said. He described the Net Integration acquisition as part of IBM’s broader effort to restructure its sales operations and channel programs to regain momentum in SMB markets.

Net Integration products are sold exclusively through solution providers and the company has some 2,600 channel partners, said Ozzy Papic, the company’s president and CEO. Lotus will build solutions around the Net Integration packages “that we believe will be very favorably received by the channel,” Rhodin said.

“The difference is that it must be an affordable turnkey package that does not require a large investment in on-site IT expertise and resources. Net Integration Technologies meets that need for our SMB customers and represents a terrific business opportunity for IBM’s business partners,” he added.

Founded in 1997, Net Integration Technologies’ tools include NitixBlue server software, which the company offers bundled with IBM Lotus Notes client software. The company also builds custom hardware and the Nitix Operating System, which is based on Linux and bundles system management, networking, security and storage services.

The Net Integration Technologies acquisition is also in line with IBM’s process of realigning operations to better define and serve customers. The company recently restructured sales operations and is lining up offerings to match those changes, Rhodin said.

“The acquisition will strengthen the business server software section of Big Blue thanks to NIT’s flagship solution which is targeted at small businesses.”

The NIT deal marks IBM’s second announced acquisition in 2008. Earlier this month, IBM disclosed its purchase of XIV Ltd., a Tel Aviv-based manufacturer of high-performance digital storage systems.

Chief Financial Officer Mark Loughridge said yesterday that IBM will continue to make acquisitions in software and services this year. Takeovers of Cognos Inc., IBM’s largest acquisition at $4.9 billion, and Telelogic AB should close in the first quarter, he said.

“IBM’s objective is to have software constitute half of its profit by 2010, spokesman Mike Azzi said in an interview today.”

IBM did not disclose financial details of the acquisition of the privately held Toronto-based Net Integration. Armonk, New York-based IBM expects to complete the deal later this quarter pending regulatory approval from the Canadian government.

“IBM did not comment on any potential layoffs or relocation of Net Integration Technologies employees.”